Search

Editors

Richard L. Cassin Publisher and Editor

Andy Spalding Senior Editor

Jessica Tillipman Senior Editor

Elizabeth K. Spahn Editor Emeritus

Cody Worthington Contributing Editor

Julie DiMauro Contributing Editor

Thomas Fox Contributing Editor

Marc Alain Bohn Contributing Editor

Bill Waite Contributing Editor

Shruti J. Shah Contributing Editor

Russell A. Stamets Contributing Editor

Richard Bistrong Contributing Editor 

Eric Carlson Contributing Editor

Bill Steinman Contributing Editor

Aarti Maharaj Contributing Editor


FCPA Blog Daily News

« Former CEO of redlight camera operator pleads guilty to Ohio bribes | Main | Russia takes small steps to fight judicial graft »
Monday
Jun222015

Alison Taylor: Does competition cause corruption?

You might expect corrupt companies to downplay and devalue the principles of market competition. In fact the opposite is true.

Corrupt companies don't acknowledge that they set out to win business through deliberate criminality. Rather, employees need to be socialized into paying bribes and encouraged to believe that corruption is an inevitable and necessary response to the hard commercial realities.

To convince employees to break the law, companies create a dominant narrative of intense rivalry and urgency. "Yes, we paid bribes, but we had no choice. Everyone else is doing it, and the ends justify the means."

Sometimes the urgency is a genuine response to the external environment and sometimes it's a top down creation.

The Johnson & Johnson FCPA enforcement action involved allegations of bribing doctors through the company’s distributor network. According to the SEC complaint, the company considered terminating a corrupt Greek distributor. But a senior J&J executive argued that “we would lose half our business… to lose approximately $4 million in sales in end user terms to the competition is totally unacceptable.”

At Siemens, the largest global corruption enforcement action to date, former executives said they believed paying bribes was necessary to maintain contracts and jobs -- “We thought we had to do it. Otherwise we’d ruin the company.”

At Walmart in Mexico, there's an ongoing FCPA investigation. Reports talk about aggressive growth targets required stores to be opened in record time and executives under pressure to do “whatever was necessary” to obtain permits.

At GlaxoSmithKline, employees bribed doctors and hospital executives in China to sell pharmaceuticals. The company initially blamed rogue elements operating outside the system. But there's evidence GSK set sales targets so high that it “stimulated every means to try to get there.”

Often we assume a corrupt culture is one of arrogance and personal greed. And that's sometimes true. But companies can also create a perfect environment for corruption when they set norms that allow employees to excuse themselves.

It's not always a healthy sign when a company appears intensely commercial, aware of its competitors, and pressing for market dominance. In that environment, senior managers sometimes encourage employees to believe they're in a war for survival and that any unethical business practices will stop at some vague future point when the battle is won.

If one sales team is hitting unreasonable targets by paying bribes, those results will project an image of failure on teams that are cleaner but produce less stellar results. This can create vicious competitive dynamics and lead to escalating corruption within the organization.

How to interrupt a downward spiral into graft? Examining incentive structures is a useful first step in understanding whether there are preexisting conditions for corruption.

And a best practice approach can combine anonymous employee engagement surveys and qualitative interviews and observation. The attitudes of employees toward competitors, incentives, leadership and informal communication can be far more revealing than compliance audits in establishing whether the organizational preconditions for corruption exist.

Corruption famously thrives in countries where there is state capture, and rampant bureaucracy mutes competition. In companies, the opposite is true. Whether real or imagined, a narrative of desperate and necessary competition is an integral part of a corrupt culture.

_______

Alison Taylor is director of advisory services at BSR, a non-profit consultancy and company network focused on sustainability and CSR.

Reader Comments (2)

Great piece.

At the personal level, Kilduff, Galinsky et al. have found that rivalry between individuals has similar, but even more pronounced, effects on corrupt behavior than general competition: "Specifically, rivalry was associated with increased Machiavellianism, over-reporting of performance, willingness to employ unethical negotiation tactics, and unsportsmanlike behavior. Further, several of these effects carried over to subsequent situations that occurred outside of the rivalrous relationship itself, suggesting that rivalry activates a mindset that can subsequently influence unrelated decisions and behaviors." (from "Whatever it Takes: Rivalry and Unethical Behavior.") So these types of motivations seem to be deeply rooted in human nature.

Getting back to the macro level of competition between companies, let me shamelessly recommend "War Games: How Framing Shapes Our Conduct" in the current issue of Ethisphere, which explores some of these same themes in the context of metaphors that we use to make sense out of our situations and which, for better or worse, can influence our decisions.
June 22, 2015 | Unregistered CommenterScott Killingsworth
Thank you Alison, this is an excellent piece. Certainly in my own industry - real estate - this is an ever present problem. All too often I have heard the phrase "but if we don't do it the opposition will" trotted out as an excuse to do something which is at best high risk or at worst downright unethical.

We have worked hard to eliminate some of the reasons why sales people resort to bribery etc., including realigning incentive payments and restructuring commissions but ... human nature being what it is we are often faced with smaller local players for whom the reward for unethical behaviour is so great that the ends do indeed justify the means. Persuading our people that we should not even try to compete on that basis is very difficult indeed.
June 23, 2015 | Unregistered CommenterJane Niven
Comments for this entry have been disabled. Additional comments may not be added to this entry at this time.